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| Iraq, Iran and Saudi Arabia - Great Analysis! | ||
| 2004-06-04 | ||
THE STRATFOR WEEKLY 03 June 2004 By George Friedman
Analysis The United States has fully entered the fourth phase of the Iraq campaign. The first phase consisted of the invasion of Iraq and the fall of Baghdad. The second was the phase in which the United States believed that it had a free hand in Iraq. It ended roughly July 1, 2003. The third phase was the period of commitment to control events in Iraq, intense combat with the Sunni guerrillas and collaboration with the Shia in Iraq and the Iranians. The fourth phase began in April with the negotiated settlement in Al Fallujah, and became official this week with the formation of the interim Iraqi government. The new government represents the culmination of a process that began during the April uprising by Muqtada al-Sadr -- and Grand Ayatollah Ali al-Sistani’s unwillingness to intervene to stop the fighting and the kidnappings. Al-Sistani’s behavior caused the Bush administration to reconsider a strategic principle that had governed U.S. strategy in Iraq since July 2003: the assumption that the United States could not afford to alienate al-Sistani and the Shiite community and remain in Iraq. The problem was that the understanding the United States thought it had with the Shia was very different from the one the Shia thought they had with the United States. It would take a microscope to figure out how the disconnect occurred and how it widened into an abyss, but the basic outlines are obvious. Al-Sistani believed that by controlling the Shia during the Sunni Ramadan offensive of October-November 2003, the Shia had entered into an agreement with the United States that the sovereign government of Iraq would pass into Shiite hands as rapidly as possible. Whether the United States had a different understanding -- or given its intelligence that the Sunni rebellion had been broken -- the fact was that by January, the United States was backing off the deal. In pressing for an interim government selected by the United States and containing heavy Sunni and Kurdish representation, and by putting off direct elections for at least a year, the United States let al-Sistani know that he was not getting what he wanted. Al-Sistani first transmitted his unhappiness through several channels, including Ahmed Chalabi. He then called for mass demonstrations. When that did not work, he maneuvered al-Sadr into rising against the Americans at the same time as the Sunnis launched an offensive west of Baghdad, particularly in Al Fallujah. Al-Sistani’s goal was to demonstrate that the United States was utterly dependent on the Shia and that it had better change its thinking about the future Iraqi government. Al-Sistani badly miscalculated. The United States did not conclude that it needed a deal with the Shia. It concluded instead that the Shia -- including Chalabi and al-Sistani -- were completely undependable allies. By striking at a moment of extreme vulnerability, the Shia crippled the U.S. Defense Department faction that had argued not only in favor of Chalabi but also in favor of alignment with the Shia. Instead, the CIA and State Department, which had argued that the Shiite alignment was a mistake, now argued -- convincingly --that al-Sistani was maneuvering the United States into a position of complete dependency, and that the only outcome would be the surrender of power to the Shia, whose interests lay with Iran, not the United States. Following the al-Sadr rising, and al-Sistani’s attempt to maneuver the United States into simultaneously protecting al-Sistani from al-Sadr and being condemned by al-Sistani for doing it, the defenders of the Shiite strategy were routed. A fourth strategy emerged, in which the United States is trying to maintain balanced relationships with Sunnis and Shia, while currently tilting toward the Sunnis. Al Fallujah is the great symbol of this. The United States negotiated with its mortal enemy,the Sunnis, and conceded control of the city to them. What would have been utterly unthinkable during the third phase from July to March became logical and necessary in April and May. The United States is now speaking to virtually all Iraqi factions, save the foreign jihadists linked to al Qaeda. Al-Sistani has gone from being the pivot of U.S. policy in Iraq, to being a competitor for U.S. favor. It is no accident that Chalabi was publicly destroyed by the CIA overt he past few weeks, or that the new Iraqi government gives no significant posts to al-Sistani supporters --and that Shia are actually underrepresented. The United States has recognized that it will not be able to defeat the Sunni insurgents in war without becoming utterly dependent on the Shia for stabilizing the south. Since the United States does not have sufficient force available in either place to suppress both a Sunni and a Shiite rising -- and since it has lost all confidence in the Shiite leadership -- logic has it that it needs to move toward ending the counterinsurgency. That is a political process requiring the United States to recognize the guerrillas linked to the Saddam Hussein military and intelligence service as a significant political force in Iraq, and to use that relationship as a lever with which to control the Shia. That is what happened in Al Fallujah; that is what is happening -- with much more subtlety -- in the interim government, and that is what will be playing out for the rest of the summer. In essence, in order to gain control of the military situation, the United States has redefined the politics of Iraq. Rather than allowing the Shia to be the swing player in the three-man game, the United States is trying to maneuver itself into being the swingman. Suddenly, as the war becomes gridlocked, the politics have become extraordinarily fluid. Every ball is in the air -- and it is the United States that has become the wild card. Changes and Consequences The redefinition of the U.S. role in Iraq has major international consequences. The U.S. relationship with Iran reached its high point during the Bam earthquake in December 2003. The United States offered aid, and the Iranians accepted. The United States offered to send Elizabeth Dole (and a player to be named later), and this was rejected by Iran. Iran -- viewing the situation in Iraq and the U.S. relationship with the Shia, and realizing that the United States needed Iranian help against al Qaeda -- sought to rigorously define its relationship with the Americans on its own terms. It thought it had the whip hand and was using it. The United States struggled with its relationship with Iran from January until March, accepting its importance, but increasingly uneasy with the views being expressed by Tehran. By April, the United States had another important consideration on its plate: the deteriorating situation in Saudi Arabia. The United States was the primary cause of that deterioration. It had forced the Saudi government to crack down on al Qaeda in the kingdom, and the radical Islamists were striking back at the regime. An incipient civil war was under way and intensifying. Contrary to myth, the United States did not intervene in Iraq over oil -- anyone looking at U.S. behavior over the past year can see the desultory efforts on behalf of the Iraqi oil industry -- but the United States had to be concerned about the security of oil shipments from Saudi Arabia. If those were disrupted, the global economy would go reeling. It was one thing to put pressure on the Saudis; it was another thing to accept a civil war as the price of that pressure. And it was yet another thing to think calmly about the fall of the House of Saud. But taking Saudi oil off the market was not acceptable. The Saudis could not stop shipping oil voluntarily. They needed the income too badly. That was never a risk. However, for the first time since World War II, the disruption of Saudi oil supplies because of internal conflict or external force became conceivable. The fact was that Saudi Arabia had a large Shiite population that lived around the oil shipment points. If those shipment points were damaged or became inaccessible, all hell would break loose in the global economy. The Iranians had a number of mutually supporting interests. First, they wanted a neutral or pro-Iranian Iraq in order to make another Iran-Iraq war impossible. For this, they needed a Shiite-dominated government. Second, they were interested in redressing the balance of power in the Islamic world between Sunnis and Shia, in particular with the Saudi Wahhabis. Finally, they wanted -- in the long run -- to become the dominant power in the Persian Gulf. Their relationship with the United States in Iraq was the linchpin for all of this. The Saudis, having already felt the full force of American fury -- and now trapped between them and their own radicals -- faced another challenge. If the U.S. policy in Iraq remained on track, the power of Iran and the Shia would surge through the region. The Saudis had faced a challenge from the Shia right after the Khomeni revolution in Iran. They did not enjoy it, but they did have the full backing of the United States. Now they are in a position where they faced an even more intense challenge, and the United States might well stay neutral or, even worse, back the challenge. If the Shia in Saudi Arabia rose with the backing of Iran and a Shiite-dominated Iraq, the Saudi government would crumble. From the Saudi point of view, they might be able to contain the radical Islamists using traditional tribal politics and payoffs, but facing the Wahhabis and the Shia at the same time would be impossible. The third-phase policy of entente between the United States and the Shiite-Iranian bloc seemed to guarantee a Shiite rising in Saudi Arabia in the not-too-distant future. As U.S.-Iranian relations became increasingly strained during the winter, the Saudis increased their cooperation with the United States. They also made it clear to the Americans that they were in danger of losing their balance as the pressures on them mounted. The United States liked what it saw in the Saudi intensification of the war effort, even in the face of increased resistance. The United States did not like what it saw in Tehran, concerned that the relationship there was getting out of hand. Finally, in April, it became completely disenchanted with the Shiite leadership of Iraq. There were therefore two layers to the U.S. policy shift. The first was internal to Iraq. The second had to do with increased concerns about the security of oil shipments from the kingdom if the Iranians encouraged a rising in Saudi Arabia. The United States did not lighten up at all on demanding full cooperation on al Qaeda. The Saudis supplied that. But the United States did not want oil shipments disrupted. In the end, the survival or demise of the House of Saud does not matter to the United States -- except to the degree that it affects the availability of oil. The United States has to balance the pressure it puts on Saudi Arabia to fight al Qaeda against the threat of oil disruption. It cannot lighten up on either. From the American point of view,the right balance is a completely committed Saudi Arabia and freely flowing oil. The United States had moved much closer to the former, and it now needed to ensure the latter. Jerking the rug out from under the Iranians and the Shia was the U.S. answer. Oil does not cost more than $40 a barrel because of China. It costs more than $40 a barrel because of fears that Saudi oil really could come off the market, and doubt that the complex U.S. maneuver can work. The obvious danger is an Iranian-underwritten rising in southern Iraq that spills over into Saudi Arabia. The United States has shut off its support for such an event, but the Iranians have an excellent intelligence organization with a strong covert capability. They are capable of answering in their own way. The future at this moment is in the hands of Tehran and An Najaf. This is the point at which the degree of control the Iranians have over the Iraqi Shiite leadership will become clear. The Iranians obviously are not happy with the trends that have emerged over the past month. Their best lever is in Iraq. The Iraqi Shia are aware that the United States is increasingly limber and unpredictable -- and that it has more options than it had two months ago. The Iraqi Shia are in danger of being trapped between Washington and Tehran. It is extremely important to note that al-Sistani today tentatively endorsed the new government, clearly uneasy at the path events were taking. Therefore there are two questions: First, will the Iranians become more aggressive, abandoning their traditional caution? Second, can they get the Iraqi Shiite leaders to play their game, or will the old rift between Qom and An Najaf (the Iranian and Iraqi Shiite holy cities) emerge once again as the Shia scramble to get back into the American game. The problem the Americans have is this: Wars are very complicated undertakings that require very simple politics. The more complicated the politics, the more difficult it is to prosecute a war. The politics of this war have become extraordinarily complicated. The complexity is almost mind-boggling. Fighting a war in this environment is tough at best --and this is not the best. What the United States must achieve out of all of this maneuvering is a massive simplification of the war goals. This is getting way too complicated.
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| Posted by:Anonymous4617 |
| #27 You're being a jerk. Idiot. Shut up. |
| Posted by: JERKFACE101 2004-06-04 2:38:04 PM |
| #26 DPA, Your point seems to be that options take oil of the market in order to fulfill future/options contracts. The only reason you would do this is to avoid being forced to pay a higher price on the delivery date. The existence of futures and options solves this problem. I.e. futures and options avoid the need to keep oil in storage in order to avoid the risk of price movements. The rise in futures/options markets has resulted in a very substantial decline in oil kept in storage for precisely this reason. In your example the seller solves his problem by buying an offsetting futures/option contract such that any price movement will have no net effect. |
| Posted by: Phil_B 2004-06-05 1:40:00 AM |
| #25 Phil hopefully you'll catch this even though it's the next day but... Options allow you to leverage your capital, thus reducing supply. For example... If I bought the right to buy 100 barrels of oil at 40 dollars (assuming that oil is trading at 38.50) in a few months it might cost me a few bucks per barrel. Now the person that sold me those options can't afford to sell his barrels in the mean time because if oil goes to 50 he goes bankrupt selling to me at 40. Therefore I've leveraged 200 dollars to reduce the supply of oil by 4000 dollars. This is simplified but effectively this is how leverage screws up traditional supply and demand. The fact that the guy who sold the oil won't sell therefore drives up the price... because he won't sell. Thus derivative traders can screw with the price of commodities beyond simple supply and demand... at least in the short term. In the long term supply and demand rules. |
| Posted by: Damn_Proud_American 2004-06-05 1:23:14 AM |
| #24 Phil B: I'm not sure whether their credit policies are allowing them to buy more oil (and steel and aluminum) in spite of the exchange rate. The credit policies, i.e. who gets loans and who doesn't, is acting as a de facto controlled economy bureau; by providing more credit for companies buying steel and oil than for other things lets them concentrate their limited foreign exchange purchases in what they consider to be important areas. Or so I'm guessing. I have to think. |
| Posted by: Phil Fraering 2004-06-05 12:48:35 AM |
| #23 DPA re derivatives - Essentially options allow you to trade future price movements. They have no effect on actual supply. |
| Posted by: Phil B 2004-06-04 11:29:21 PM |
| #22 But what they lose in profit they make up for in volume. The insanely disproportionate trade imbalance gives them money enough to afford all the oil they want. Do you disagree? No, the reason they have the distorted trade balance is because the exchange rate artificially depresses all imports including oil. You have the cause and effect the wrong way round. |
| Posted by: Phil B 2004-06-04 11:25:38 PM |
| #21 For anything traded in a market the price is supply and demand driven. There is a supply problem and substantially its called OPEC. I didn't understand the comment about derivatives. That's only true in a world without derivatives (options). Derivatives allow for the equivelant effect of an artificial inflation of or reduction in supply on the price of a commodity (or any equity for that matter). The problem is that derviatives allow you to leverage vast quantities of supply with little capital. If you want to read a very extreme example of the influence that derivatives can have far beyond the traditional supply and demand aspects of a market read the story of Long Term Capital Managment. |
| Posted by: Damn_Proud_American 2004-06-04 9:36:59 PM |
| #20 And Zenster China's artificially pegged currency actually suppresses its demand for oil because it makes oil more expensive for them. But what they lose in profit they make up for in volume. The insanely disproportionate trade imbalance gives them money enough to afford all the oil they want. Do you disagree? |
| Posted by: Zenster 2004-06-04 9:17:20 PM |
| #19 Phil, the price of oil at this point in time is not supply and demand driven. For anything traded in a market the price is supply and demand driven. There is a supply problem and substantially its called OPEC. I didn't understand the comment about derivatives. And Zenster China's artificially pegged currency actually suppresses its demand for oil because it makes oil more expensive for them. |
| Posted by: Phil B 2004-06-04 8:02:36 PM |
| #18 Robert Crawford, the Saudi succession fight looks to me a bit like the Iran-Iraq war: no good guys to be found. |
| Posted by: someone 2004-06-04 7:51:31 PM |
| #17 #13 well once the mulla's in iran is taken out it will not matter. i believe there will govt (in iraq and ira) that will fall in the middle. Here's hoping. Unfortunately, Iran's interference represents one of the biggest roadblocks to success right now. There is no short term solution for eliminating their negative effect on the situation short of blowing the Iranian mullahs straight to hell. Internal insurrection is insufficiently well armed or organized enough to accomplish the task and merely bombing Iran's atomic weapons program into rubble will not put an end to their constant interference. Some way of polarizing the Qom - Najaf Shias and thereby eliminating any potential collaboration between them would seem best. Does anyone have a read on how to go about doing this? Per the oil issue, I tend to agree with Phil B's analysis, save for the fact that China's artificially pegged currency and intentionally skewed foreign trade deficits allow them an exaggerated degree of demand that a properly regulated (read: legitimately operated) economy would most definitely not. Just one more reason why China needs to be slapped back into line. Sadly, neither America nor Europe have any political backbone to do so right now and the long term repercussions of this will be truly devastating. |
| Posted by: Zenster 2004-06-04 7:41:26 PM |
| #16 The House of Saud has spent decades painting themselves and their entire nation into a sociopolitical corner. I still believe the root of the Saudi problem is the succession fight. AQ vs. the Saudi government is a proxy for factions of the Saudi "royal" family. Yes, it almost certainly has gotten out of hand. That doesn't mean that wasn't the original intent. |
| Posted by: Robert Crawford 2004-06-04 7:26:05 PM |
| #15 Phil, the price of oil at this point in time is not supply and demand driven. It's derivative driven. That's the simple truth. You're saying that there isn't a supply problem because high prices are lowering demand. My point is that there's not a supply problem at far lower prices than we have now. |
| Posted by: Damn_Proud_American 2004-06-04 6:46:54 PM |
| #14 DPA there is most definitely a supply shortage of oil, which is not the same as saying there is not enough oil at particular point of time. I wont go into a long explanation on the role of speculators in markets, but essentially they make them more efficient. High prices will prevent there being not enough oil by curbing demand and more importantly increasing production. If there were no speculators, then you would likely find that there was not enough oil and your local gas station was dry. The Saudis etc. blame speculators to deflect blame away from the real cause which is OPEC. |
| Posted by: Phil B 2004-06-04 6:20:58 PM |
| #13 well once the mulla's in iran is taken out it will not matter. i believe there will govt (in iraq and ira) that will fall in the middle. |
| Posted by: Dan 2004-06-04 5:42:49 PM |
| #12 Thank you for elucidating, Tibor. I remain concerned that your spectacles are nonetheless overly roseate. After such lengthy and brutal oppression at the hands of Saddam, one can only hope that the Shias have learned secularism's value. Sadly, I still see the common obsession with theocratic rule as a big threat to the emergence of a functional Iraq. This is one case where I definitely hope that I'm wrong. |
| Posted by: Zenster 2004-06-04 3:07:48 PM |
| #11 [Off-topic or abusive comments deleted] |
| Posted by: JERKFACE101 TROLL 2004-06-04 2:38:04 PM |
| #10 i expect something in between Zenster and tibor. It seems to me that while SOME Iraqi Shia are secular - including upper class elements like Chalabi and Allawi, but also an urban working class secular element, traditionally organized by the (now reformed) Iraqi Communist Party, most Iraqi Shia, ARE pretty religious. OTOH it also seems like some the ayatollahs have looked at Iran, and seen what full fledged theocracy does to the popularity of Ayatollahs. So I see Sistani et al opposing full clerical rule, but probably still pushing for "Sharia-lite" at least muslim family law applied to muslims. The secular shia might cut a deal with them, or might ally with the Kurds and Sunnis instead. And there is a minority that DOES support Sadrs vision of an Islamic state, and theyll be a problem for years, kinda like the Communists in western europe during the cold war. |
| Posted by: Liberalhawk 2004-06-04 2:19:52 PM |
| #9 Zenster, my point is not that the Shia-dominated Iraqi government will become a theocracy. In fact, there is ample evidence that the opposite is true -- the Iraqi Shias are quite secular, and are certainly not enamored of the Iran model, especially since everyone knows how unpopular the Mad Mullahs are. In my view (through rose-colored glasses), the fruit to be borne of the Iraqi democratic process is a secular state whose dominant ethnicity happens to be Shia. That's why it is so important to stop al-Sadr. If he offs al-Sistani and some of the other Grand Ayatollahs, he could create real problems. |
| Posted by: Tibor 2004-06-04 2:07:14 PM |
| #8 Ledeen was saying on a local radio station this morning (KSFO) that the rise in oil prices is due to the speculation/intel that the Saudi government is going to fall and fall quickly. DPA was right on target, Ledeen just supplied the underlying reasoning. |
| Posted by: remote man 2004-06-04 1:35:39 PM |
| #7 Al-Sistani believed that by controlling the Shia during the Sunni Ramadan offensive of October-November 2003, the Shia had entered into an agreement with the United States that the sovereign government of Iraq would pass into Shiite hands as rapidly as possible. Dream on, sucker! Al-Sistani badly miscalculated. The United States did not conclude that it needed a deal with the Shia. It concluded instead that the Shia -- including Chalabi and al-Sistani -- were completely undependable allies. A whopping BGO (Blinding Glimpse of the Obvious). By April, the United States had another important consideration on its plate: the deteriorating situation in Saudi Arabia. The United States was the primary cause of that deterioration. It had forced the Saudi government to crack down on al Qaeda in the kingdom, and the radical Islamists were striking back at the regime. EMPHASIS ADDED This is pure banana oil. The House of Saud has spent decades painting themselves and their entire nation into a sociopolitical corner. Content with their vampire's feast upon ever-plentiful petrodollars, the royals never even bothered to industrialize Saudi Arabia or properly educate their citizenry (religious indoctrination does not count for sh!t). The Saudi government is now confronted with an increasingly assertive terrorist infrastructure of their own making and a nation that has little other income stream than the oil beneath their sands. What oil there is in the pipelines and refineries is almost entirely out of their control because they have never bothered to constructively encourage technological literacy within their borders and remain utterly reliant upon foreign expertise to keep their inbound revenue flowing. The Iranians had a number of mutually supporting interests. First, they wanted a neutral or pro-Iranian Iraq in order to make another Iran-Iraq war impossible. For this, they needed a Shiite-dominated government. Second, they were interested in redressing the balance of power in the Islamic world between Sunnis and Shia, in particular with the Saudi Wahhabis. Finally, they wanted -- in the long run -- to become the dominant power in the Persian Gulf. Their relationship with the United States in Iraq was the linchpin for all of this. All the more reason to oust the Shia controlled elements in the new Iraqi government. Such meddling as we have seen from Iran is a huge red flag that had better be noticed. The United States did not lighten up at all on demanding full cooperation on al Qaeda. The Saudis supplied that. But the United States did not want oil shipments disrupted. In the end, the survival or demise of the House of Saud does not matter to the United States -- except to the degree that it affects the availability of oil. It remains to be seen whether Saudi Arabia even realizes this. Too long have they fed at the trough without looking up from their gorgings. The obvious danger is an Iranian-underwritten rising in southern Iraq that spills over into Saudi Arabia. The United States has shut off its support for such an event, but the Iranians have an excellent intelligence organization with a strong covert capability. They are capable of answering in their own way. Just one more reason why America needs to consider a decapitating strike on the Guardian Council when it is in full session. There are few other avenues towards dismantling the mullah based power structure in Iran. The confusion and complications (i.e., nuclear #5 ... They realize that the most practical and legitimate way to achieve Shia control (if not dominance) is to let the democratic process come to fruition and allow their majority status to bear its own fruit. This is one of the more concise summations of Shia strategy in Iraq. The potential for an Iraqi Shia majority voting into power a theocratic tyranny must be avoided at all costs. While there are few ways to dissuade those used to centuries of religious government, a sufficiently empowered minority (i.e., the Kurds) must be levered into Iraq's legislative body to effectively form a veto block for such a geopolitical nightmare. |
| Posted by: Zenster 2004-06-04 1:22:18 PM |
| #6 This iranian born french sees eye to eye with Tibor. |
| Posted by: frenchfregoli 2004-06-04 12:53:00 PM |
| #5 I agree that StratFor's analyses have been pretty spotty. They consistently overestimate Iran's influence on al-Sistani and underestimate Iran's direct efforts to foment trouble in Iraq. IMO, Iran's interest is a chaotic Iraq where the US is bogged down, not a stable, Shia-dominated Iraq where the Najaf Shia won't play ball with the Qom Shia. Other than al-Sadr, the Iraqi Shia leaders have shown very little willingness to do Iran's bidding and a lot of willingness to play ball with the US/UN. They realize that the most practical and legitimate way to achieve Shia control (if not dominance) is to let the democratic process come to fruition and allow their majority status to bear its own fruit. |
| Posted by: Tibor 2004-06-04 11:48:24 AM |
| #4 I'm gonna say this one last time... ;) There is no oil supply shortage! The reason oil prices are high is because futures traders have bid them up on the notion that there MIGHT be a supply shortage in the future. |
| Posted by: Damn_Proud_American 2004-06-04 11:41:01 AM |
| #3 and of course, we are responsible for the Saudis struggling with the monster they birthed and nurtured... |
| Posted by: Frank G 2004-06-04 10:53:37 AM |
| #2 LH, An excellent observation. The situation in Iraq and Saudi is what is adding volatility to the oil market (vice aluminum or steel), but it is the strong demand pressure from China that has caused the supply shortage in the first place. |
| Posted by: dreadnought 2004-06-04 10:48:52 AM |
| #1 he maneuvered al-Sadr into rising against the Americans at the same time as the Sunnis launched an offensive west of Baghdad, I dont beleive this. while theres a kernel of truth in the notion that the Fallujah deal was to put pressure on Sistani, i see no evidence that Sistani wanted Sadr to rise, or that Sistani is as close to the Iranians as Stratfor has consistently maintained. As for SF's claim that China is not the cause of rising oil prices, does SF have an explanation for rising steel or aluminum prices? Is AQ active in the many countries that export steel and aluminum? |
| Posted by: Liberalhawk 2004-06-04 10:30:25 AM |